Letters & Opinion

TAK Part 2: (How) To Lose A Kingdom

By David Prescod
Image of David Prescod
By David Prescod

LAST week, we indicated that at the sod-turning ceremony for the DSH horseracing project in Vieux Fort, TAK Consultants was present along with two Chinese contractors. One of these, China State Engineering Construction Company, reportedly signed a memorandum of understanding with the Government the day following that ceremony and, assuming that the report was correct, we questioned why this was necessary as DSH has absolute authority with respect to the engagement of contractors on this project (Clause 5 of the Framework Agreement).

We were also curious to know what had led to the selection of China State Construction Engineering Company as an apparently preferred contractor, and a check of that company’s website showed that the company had been involved with construction of the Grandstand for the Meydan horseracing complex in Dubai, TAK Consultants’ signature horseracing project.

It is not so much the story of the involvement of China State Engineering Construction Company on that Meydan project which is important to us as it is the events that led to their engagement and, even more importantly, the story of the events arising in a subsequent phase of the Meydan development. Here is that story.

The scale of construction in Dubai is massive and Meydan development demonstrates this. The Meydan website indicates that Meydan is the visionary concept of the Ruler of Dubai, the project being not only the creation of a venue for horseracing but the development of an integrated city that is sustainable and positions Dubai at the centre of the competitive business stage.

Meydan Group LLC is responsible for realizations of that vision which includes “international horseracing and equestrian events, commercial developments, hospitality, sports, entertainment and amusement services, a series of state-of-the-art business parks, residential villa communities, schools, hospitals, business towers with luxury waterfront developments and shopping destinations”.

TAK Consultants was appointed architect for preparation of the masterplan and design of the Meydan horseracing complex in 2006 and while the Grandstand for the venue has achieved prominence in TAK’s promotional literature, the complex also included a hotel and 10,000 space car-park facility. Construction of the grandstand and hotel were completed in March 2010, with this phase of the development reportedly valued at US$1.25bn.

TAK’s involvement was, however, much greater than this as the masterplan which it had prepared included the development of adjoining business parks, commercial and residential mixed use parks, a marina, museum and other facilities. The entire development, inclusive of the horseracing complex, was expected to cost US$2.7bn.

With TAK Consultants having designed the grandstand and hotel, the joint venture firm of Arabtec-WCT was engaged for construction in 2007. Arabtec is one of the largest contractors in the Middle East and has its headquarters in Dubai, while WCT is from Malaysia.

TAK Consultants functioned as the Client’s Representative during the construction phase and about six months into the contract a company called Honeywell was invited to tender by Meydan as a nominated sub-contractor for an aspect of the works. The tender document issued for those works by TAK was peculiar, however, in that it required bidders to pay TAK a sum of approximately US$7,000 in respect of documentation fees and a US$27,000 deposit on tendering. Both of these amounts were to be refundable to unsuccessful tenderers. For the successful tenderer, however, the refundable US$27,000 deposit was to be applied to a US$108,000 charge by TAK for the printing of tender and contract documentation.

Payment by a contractor to a consultant to the project on which that contractor is engaged is an extremely unusual arrangement as it potentially compromises the consultant’s integrity. Even though in this case the Client was supposedly aware of the payments, printing charges are normally part of the Architect’s charge to the Client, not to the contractor. What followed is true to script.

Subsequent to the award of the contract to Arabtec-WCT in September 2007, in June 2008 Meydan nominated Honeywell as the sub-contractor to be engaged by Arabtec-WCT. However, in December of that year (2008), Meydan cancelled its contract with Arabtec-WCT, claiming that the contractor was not adhering to the agreed time schedule for construction. This is again unusual, as simple delay would not normally form the basis for termination of a construction contract, and at arbitration WCT prevailed (Arabtec is pursuing their claim separately).

With there now being no main contractor, the remaining works were undertaken by direct engagement of sub-contractors, with TAK Consultants assuming the role of Project Manager. The Chinese construction firm which last November signed that memorandum of understanding with our Government, China State Construction Engineering Corporation, then became one of those sub-contractors.

Another of the sub-contractors falling directly under TAK Consultants’ management was Honeywell, (who we encountered above), and a contract was signed between this company and Meydan in June 2009. By July 2010, however, Honeywell had itself proceeded to arbitration, claiming that although payments had been made with respect to their applications up to December 2009, payments were overdue, payment certificates had not been issued, and sums for work performed had been under-certified. The situation then became one where a sub-contractor, who had previously paid monies directly to a consultant for services provided on a project, (printing), was now in dispute with that consultant over the value of works executed on the same project.

With Meydan not participating in the arbitration proceedings in Dubai, Honeywell prevailed, and it is Honeywell’s claim in the UK courts seeking to have the arbitration award enforced in the UK, (EWHC/TCC/2014/1344), and Meydan’s request for information through the U.S. Courts, (Civil Action No. 15-02141 (JLL) (JAD) (D.N.J. May 21, 2015)), that have provided most of the detail.

With the horseracing complex completed in March 2010, in May 2010 Meydan awarded a contract for the first phase of an associated business park which had been designed by TAK Consultants. This project involved the construction of 16 commercial buildings.

In seeking further information from Honeywell through the U.S. Courts as indicated above, Meydan alleged that in August 2011 it became concerned with reports of bribery and corruption on the construction site involving its Project Manager, TAK Consultants, but that TAK had refused to cooperate with their investigation of those allegations.

In that matter, Meydan further alleged that around November 2011, it discovered that TAK had “absconded from the site altogether, removing nearly all project documents and destroying computer equipment so as to leave no evidence of TAK’s activities or the Racecourse Project itself”. The U.S. Court upheld Meydan’s request for information from Honeywell.

And in the UK court, where Honeywell sought enforcement of the arbitration award while Meydan resisted this, a reference to the witness statement of Meydan’s legal consultant at para 79 indicates that Meydan “filed a criminal complaint in the Dubai Courts on November 22, 2011 against TAK, Arabtec, and selected senior management individuals of those entities” in respect of those allegations of bribery and corruption taking place during construction of the racecourse grandstand and hotel. The UK court upheld the arbitration award to Honeywell.

While we in St. Lucia have little concern with regards to the charges that have been made by Meydan against TAK, it is instructive to note that in the English court, Meydan relied on that payment of US$108,000 to TAK, by Honeywell, as evidence of their claim of bribery of the consultant (TAK).

The second matter of relevance to us is that the implementation of this Meydan Racecourse project was beset with problems, some of which may have been as a result of perhaps too ambitious a timeframe for completion, but problems that nonetheless resulted in arbitration claims against the developer being upheld. There is no comment on the performance of TAK Consultants other than the corruption claims later made by the developer but while the racecourse phase of the project was completed on schedule, this was achieved at a price.

The matter of greatest significance to us, however, is that the relationship between the consultant, TAK Consultants, and the developer, Meydan Group LLC, was significantly damaged during the course of execution of these contracts, to the point where the developer indicated to the UK Court that it had filed a criminal complaint against the consultant. It has not been possible to determine the outcome of this allegation in the Court of Dubai, and so we only make reference to the allegation to substantiate the breakdown in the relationship between Client and Consultant.

It is significant as we have to wonder what would permit a consultant engaged on a US$1.25bn project to allow his relationship with his Client to be irretrievably damaged by issues arising from receipt of a relatively minor payment of US$108,000 from a sub-contractor. We have no indication of TAK’s fees on this project, but we can assume that the architectural fee must have been in the multi-million US dollar range, with a similarly scaled project management fee applied to the construction phase.

We have to appreciate also that the Chairman of Meydan Group LLC is also the Chairman of Meydan City Corporation, and that the Chairman of this Corporation is appointed by the Ruler of Dubai. An irretrievably damaged contractual relationship with Meydan Group LLC is, therefore, certain to come to the attention of the Ruler of Dubai and must cause significant damage to the prospects of anyone wishing further work in that Kingdom.

In a normal world, issues such as those described above would have to have been satisfactorily explained to a Government by any consultant intending to promote the development of a project in the respective country, particularly when that project is valued at US$2.6bn and relies for the most part on the sale of that country’s passports. But this is St. Lucia and so we do not know what explanations, if any, have been given to Government and we do not expect to be told.

And so, in this abnormal experience of governance that has now become the order of the day for us, our government continues to extol the virtues of Teo Ah Khing and DSH, and continues to support the Vieux Fort adventure wholeheartedly.

Part 3 examines the knot that we have tied ourselves into with the Framework Agreement and DSH.

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